Can education save Europe from high unemployment?

Nicole Walter and Runli Xie

No 2008-039, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: Empirical observations show that education helps to protect against labor market risks. This is twofold: The higher educated face a higher expected wage income and a lower probability of being unemployed. Although this relationship has been analyzed in the literature broadly, several questions remain to be tackled. This paper contributes to the existing literature by looking at the above mentioned phenomena from a purely theoretic perspective and in a European context. We set up a model with search-and-matching frictions, collective bargaining and monopolistic competition in the product market. Workers are heterogeneous in their human capital level. It is shown that higher human capital increases the wage rate and reduces unemployment risks, which is consistent with empirical observations for European countries.

Keywords: Human capital; search frictions; collective bargaining; monopolistic competition (search for similar items in EconPapers)
JEL-codes: E24 J24 J52 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb649:sfb649dp2008-039

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